Gold drops 1% as Spain worries hit euro, stocks

Gold prices fell more than 1 percent on Monday as concerns over Spain's financial health pushed the euro to two-year lows against the dollar, pressured stock markets and drove Spanish borrowing costs to euro-era highs.

Investors grew more concerned on Monday that Spain may need a full bailout after a second region, Murcia, indicated it would need government help, likely following Valencia in tapping a government programme to shore up its finances.

Gold recovered from lows with the euro after the International Monetary Fund said it will start discussions with the Greek authorities on July 24 on how to bring Greece's economic programme back on track, but remains under heavy pressure from losses in the euro and stock markets.

Spot gold was down 0.9 percent to $1,570.30 an ounce at 1347 GMT. Expectations for more euro weakness, and consequent dollar strength, is set to keep gold on the back foot.

SPDR  ETF outflows

From a technical perspective, gold is set to find support around $1,559/1,560, according to analysts who study past price patterns to determine the future direction of trade. Prices have held within a $1,525-1,675 range for more than three months.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust dropped for a fourth consecutive week after a 2.4 tonne outflow on Friday, down 15 tonnes, their biggest weekly decline since late December.

Gold demand from major consumers India and China also remained weak, analysts said.

"Our sales to India do not indicate any improvement as yet and neither does combined gold volumes on the Shanghai Gold Exchange, which have been 30 percent below average this month," UBS said in a note.

"Evidence of a significant response from physical buyers is needed first, before the investment community can be expected to follow suit."

U.S. gold futures for August delivery were down $13.60 an ounce at $1,569.20.

Silver was down 1.9 percent at $26.77 an ounce, while platinum was down 1.5 percent at $1,389.49 an ounce and palladium was down 1.4 percent at $563.25 an ounce.

Trade data from China, a major market for industrial precious metals, showed a 23.6 percent year-on-year drop in silver imports in June, a 29.6 fall in palladium imports, and a 31.8 percent rise in platinum inflows. In the year to date, imports of all three metals are down.